Canada's Dollar Climbs to Three-Week High as Inflation Jumps
<<wow...that is a huge drop in USDCAD>>
bloomberg.com
By Haris Anwar
March 20 (Bloomberg) -- Canada's dollar rose to a three- week high after a government report showed inflation accelerated last month, reducing the likelihood the Bank of Canada will lower borrowing costs.
The currency rebounded from an 11-day low as a measure of inflation exceeded the central bank's target. The central bank kept the benchmark rate for overnight loans at 4.25 percent this month for a sixth straight meeting, saying inflation will return to the central bank's 2 percent target at the beginning of 2008.
``Investors are immediately pricing out any Bank of Canada rate cut throughout the curve,'' said Jack Spitz, director of foreign exchange trading in Toronto at National Bank of Canada. ``This number will reverse the trend, and should be more supportive for the Canadian dollar.''
Canada's dollar rose 0.8 percent, the most since Feb. 21, to 85.64 U.S. cents at 9:24 a.m. in Toronto. One U.S. dollar buys C$1.1607. The currency was the biggest gainer among 16 major currencies against the U.S. dollar.
The measure most closely monitored by the central bank, excluding volatile goods such as gasoline, jumped to 2.4 percent from a year ago, the fastest pace since March 2003, Statistics Canada said today in Ottawa. The median forecast in a Bloomberg survey was for no change from January's 2.1 percent.
Rate Outlook
Investors in the futures market pared bets the Bank of Canada will cut borrowing costs this year. The yield on September's futures contract rose 4 basis points, or 0.04 percentage point, to 4.23 percent after the report, indicating the contract doesn't reflect any rate cut this year. The contract was 4.05 percent on March 5.
``The market was extremely short on the Canadian dollar,'' said David Mozina, a currency strategist at Lehman Brothers Holdings Inc. in New York. Today's report is ``lending a big support to the currency.'' A short position is a bet the currency will decline.
Futures traders' bets that the Canadian dollar will fall were near a record last week, according to data released on March 16 by the Washington-based Commodity Futures Trading Commission. Speculators and hedge funds held C$7.4 billion in bets against the Canadian dollar during the last week. Such bets reached a record C$8.5 billion in January.
``The fear that Canada will be hurt badly if the U.S. economy slows is now out of line with the reality,'' said Mozina. ``Every bit of news out of Canada on the economic front has been very constructive for the currency, which still sits at odds with where the market is positioned.''
The yield on Canada's benchmark 10-year bond rose 2 basis points to 4.08 percent, the highest since Feb. 23. The price of the 4 percent bond due June 2016 fell 14 cents to C$99.40. Bond yields move inversely to prices.
The bond yielded 48 basis points less than the comparable- maturity U.S. 10-year Treasury note, narrowing from 52 basis points yesterday. |
